Various systems and programs for quantifying and trading emissions credits have evolved in response to environmental legislation and/or regulations in the United States. For example, the “bubble concept” of treating an entire industrial complex as a single source, with a single allowable emission rate, was advanced by the U.S. steel industry in the late 1970s. This approach let companies choose the most cost-effective mix of controls to achieve the overall environmental goal for the facility. In contrast, the prevailing regulatory framework at that time imposed individual emission limits on each source within the complex. The U.S. Environmental Protection Agency (EPA) later adopted such a “bubble policy” for air emissions.
The intra-plant bubble concept thereafter evolved to allow for trading of emissions credits between companies. Pursuant to the Clean Air Act of 1970, EPA, in December 1976, published an interpretive ruling that allowed new source construction in areas that were not in attainment with national ambient air quality standards only if a new source obtained emission reduction “offsets” that exceeded the emission increases from the new construction. EPA's interpretive ruling expressly allowed owners of new sources to obtain these offsets from other companies that operated facilities located in the same air quality control region. EPA adopted regulations codifying the emissions offset requirement subsequent to the Clean Air Act Amendments of 1977. To implement the emissions offset requirement, many states have developed regulations allowing sources to register their emissions reductions as “emission reduction credits” that can be sold to companies required to offset emissions from new of modified sources. Brokerage companies typically handled sales between companies having surplus emission reduction credits and those wanting to acquire such credits.
In 1990, the Clean Air Act Amendments formally legislated emission trading. For the EPA Acid Rain Program, the Chicago Board of Trade has, since 1998, administered an annual auction of sulfur dioxide (SO2) allowances from private allowance holders (utilities or brokers) to regulated companies, brokers, environmental groups, and the general public. Beginning in 1999, the EPA Ozone Transport Commission NOx Budget Program allowed trading in nitrogen oxides (NOx) credits in a group of U.S. states, to reduce summer smog.
Other domestic emissions credit programs have been proposed or implemented on a state or regional level. The RECLAIM Program (Regional Clean Air Incentives Market) applies to stationary sources in southern California and is administered by the South Coast Air Quality Management District (SCAQMD). Trading of RECLAIM Trading Credits (RTCs) in sulfur oxides (SOx) and NOx began in 1994 in an effort to reduce the area's severe smog. If emissions are below the permitted limit, the excess RTCs may be sold to others.
California's SCAQMD program provides alternate methods of compliance with local emissions reduction regulations. For example, in 1997, the SCAQMD promulgated Rule 2506, which established a voluntary program that encourages replacement of old, higher-emitting equipment not subject to state permitting or registration requirements (area sources) with lower-polluting technology. The Rule 2506 program generates emissions credits termed Area Source Credits (ASCs).
The PERT Project (Pilot Emission Reduction Trading), in Ontario, Canada began in 1996 and comprises members from industry, government, and public interest organizations. Under PERT, Emission Reduction Credits (ERCS) are created when the pollution source reduces emissions below its actual level or regulated level. ERCs may be used by the source to meet current or future emissions caps, or may be sold. ERCs may be SO2, NOx, CO2, greenhouse gases (GHG) or other contaminants.
Emission trading is also contemplated on an international level. The 1997 Kyoto Protocol, an agreement pursuant to the United Nations Framework Convention on Climate Change, provides for “bubbles” or the pooling of obligations within groups of countries, e.g., the European Union, for GHG. Other proposals under the Kyoto Protocol include international trading of emissions among certain countries, and credit for joint projects implemented in certain countries. A number of countries have ratified the Kyoto Protocol.
The various schemes described above provide substantial incentives for certain sources of pollution, such as utilities and industrial plants, to reduce their emissions. Notably lacking in these schemes, however, are programs for capturing the benefits of potential energy efficiency measures and the resulting emissions reductions by residential consumers.
Theoretically, residential emission reductions could be recognized under a variety of emissions trading programs. However, four hurdles have historically kept reductions from residential housing sources off the market:                1. Residential emission savings are generated in very small quantities relative to those sought by the market;        2. Residential emission savings are not yet fully recognized by prior known regulatory regimes;        3. Residential emission savings are generated by many, many homeowners with no means or incentive for collective action; and        4. Transaction costs—those associated with quantifying, certifying, marketing, selling, and transferring the reductions—have been prohibitive.        
Residential housing units account for approximately one-fifth of GHG emissions in the U.S. Building more efficient homes, retrofitting existing ones, and/or making other structural and fuel changes can dramatically decrease the amount of energy used. Energy efficiency improvements are made to residential units in some instances in response to energy company demand-side management programs, consumer upgrades, and/or builder incentives. Yet, the energy savings from a simple individual home has a non-measurable impact at electricity generation plants. The aggregate impact of energy efficiency upgrades to thousands of homes, however, could have a significant impact, such as reductions in peak load.
These decreases in energy consumption naturally lead to a reduction in air pollutant emissions (i.e., criteria pollutants and GHG). Other measures, such as switching to low-VOC paints, paving driveways, and improving home design, can also have significant impacts on air pollution. Although the air quality impact of a single energy efficient home is relatively small, the result can be quite dramatic when the emissions reductions from large numbers of homes are aggregated together. When the individual residential energy savings are aggregated in sufficient volumes, embodiments of the present invention contemplate that the aggregation will represent a significant tradable commodity in existing and future emissions trading markets.
Embodiments of the present invention have many potential benefits and advantages. Energy costs are typically the second largest cost for homeowners. A program that provides incentives to invest in energy efficiency will save the homeowner money. It has been estimated, for example, that an efficient house can save 30% on annual energy bills. In addition, embodiments of the present invention may create a valuable new commodity and decrease the cost of energy efficiency. Embodiments of the present invention may reduce the amount of air pollution associated with housing: an energy efficient house may save 2–3 tons of CO2 per year and 3–5 lbs. of NOx per year.
It is therefore an advantage of some, but not necessarily all, embodiments of the present invention to provide a method for trading residential emissions.
It is another advantage of embodiments of the present invention to provide a residential emissions trading commodity.
It is another advantage of embodiments of the present invention to identify energy savings opportunities in residential properties.
It is yet another advantage of embodiments of the present invention to provide a method for converting an aggregate of residential emissions reductions into a tradable commodity that can be marketed.
Additional advantages of the invention are set forth, in part, in the description that follows and, in part, will be apparent to one of ordinary skill in the art from the description and/or from the practice of the invention.